7. If you own or lease five more cars that are used for business at the same time, you can use the standard mileage rate for the business use of any car.

A. True

B. False

Record Keeping

Sampling

8. You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year.

A. True

B. False

How to Report

Both Self-employed and Employee

9. If you are both self-employed and an employee, you are not required to keep separate records for each business activity.

A. True

B. False

How to Report

Required Records for Clients or Customers

10. If you are a client or customer, you generally have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf.

A. True

B. False

CPE Accounting & Tax Institute

Answer#1

1A. True - Incorrect. Return

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located. If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is.

1. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.

2. You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

3. You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are a transient; your tax home is wherever you work and you cannot deduct travel expenses.

Answer#1

1B. False - Correct Return

Your tax home is generally your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located. If you have more than one regular place of business, your tax home is your main place of business.

Answer #2

2A. Incorrect. Return

To be deductible, the expense can meet either the directly-related test or the associated test. To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that:

1. The main purpose of the combined business and entertainment was the active conduct of business,

2. You did engage in business with the person during the entertainment period, and

3. You had more than a general expectation of getting income or some other specific business benefit at some future time.

Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility.

Answer#2

2B. Correct . Return

Either the directly-related or the associated test can satisfy the requirement. To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: associated with the active conduct of your trade or business, and directly before or after a substantial business discussion (defined later). Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. The purpose may be to get business or to encourage the continuation an existing business relationship.

Answer #3

3A. True - Correct Return

In general, you can deduct only 50% of your business-related meal and entertainment expenses. (If you are subject to the Department of Transportation's "hours of service" limits, you can deduct a higher percentage.)

3B. False - Incorrect Return

In general, you can deduct only 50% of your business-related meal and entertainment expenses. The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions.

1 - Employee's reimbursed expenses. If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan.

2 - Self-employed. If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all three of the following requirements are met.

1. You have these expenses as an independent contractor.

2. Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.

3. You provide adequate records of these expenses to your customer or client.

3 - Advertising expenses. You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit.

4 - Sale of meals or entertainment. You are not subject to the 50% limit if you actually

sell meals, entertainment, goods and services, use of facilities to the public. For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit.

5 - Charitable sports event. You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event.

Individuals subject to "hours of service" limits. You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's "hours of service" limits.

Answer #4

4A. True - Correct Return

If you give gifts in the course of your trade or business, you can deduct all or part of the cost. You can deduct no more than $25 for business gifts you give directly or indirectly any one person during your tax year. A gift to company that is intended for the eventual personal use or benefit of a particular person or limited class of people will be considered an indirect gift to that particular person or to the entertainment of individuals within that class of people who receive the gift.

4B. False - Incorrect Return

You can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. If you and your spouse both give gifts, both of

you are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

Example. Bob Jones sells products to Local Company. He and his wife, Jan, gave Local Company three cheese packages to thank them for their business. They paid $80 for each package, or $240 total. Three of Local Company's executives took the packages home for their families' use. Bob and Jan have no independent business relationship with any of the executives' other family members. They can deduct a total of $75 ($25 limit × 3) for the cheese packages.

Answer #5

5A. Incorrect. Return

Correct answer is E. All of the above. Transportation expenses include the ordinary and necessary costs of getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. You cannot deduct them.

5B. Incorrect. Return

Correct answer is E. All of the above. Transportation expenses, however, do include the ordinary and necessary costs of visiting clients or customers.

5C. Incorrect. Return

Correct answer is E. All of the above. Transportation expenses, however, do include the ordinary and necessary costs of going to a business meeting away from your regular workplace.

5D. Incorrect. Return

Correct answer is E. All of the above. Transportation expenses include the ordinary and necessary costs of getting from your home to a temporary workplace when you have one or more regular places of work. If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance.

5E. Correct. Return

All of the above. Transportation expenses include the ordinary and necessary costs of

A. Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home.

B. Visiting clients or customers.

C. Going to a business meeting away from your regular workplace.

D. Getting from your home to a temporary workplace when you have one or more regular places of work.

However, you cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.

Example. You had a telephone installed in your car. You sometimes use that telephone to make business calls while commuting to and from work. Sometimes business associates ride with you to and from work, and you have a business discussion in the car. These activities do not change the trip from personal to business. You cannot deduct your commuting expenses.

Answer #6

6A. True - Incorrect Return

If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. If you do not use the standard mileage rate, you may be able to deduct your actual car expenses.If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction.

6B. False - Correct Return

If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. You cannot deduct the special depreciation allowance (and you do not need to make the election not to claim the allowance), depreciation, or lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, and vehicle registration fees. If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years, you can choose to use either the standard mileage rate or actual expenses.

Answer #7

7A. True - Incorrect Return

If you own or lease five more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. However, you may be able to deduct your actual expenses for operating each of the cars in your business. You are not using five or more cars for business at the same time if you alternate using (use different times) the cars for business.

7B. False - Correct Return

You cannot use the standard mileage rate for the business use of any car, if you own or lease five more cars that are used for business at the same time.

Example 1. Marcia, a salesperson, owns three cars and two vans that she alternates for calling on her customers. She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time.

Example 2. Tony and his employees use his four pickup trucks in his landscaping business. During the year, he traded in two of his old trucks for two newer ones. Tony can use the standard mileage rate for the business mileage all six of the trucks he owned during the year.

Example 3. Chris owns a repair shop and an insurance business. He and his employees use his two pickup trucks and van for the repair shop. Chris alternates using his two cars for the insurance business. No one else uses the cars for business purposes. Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for busi- business at the same time.

Example 4. Maureen owns a car and four vans that are used in her housecleaning business. Her employees use the vans and she uses the car to travel to various customers. Maureen cannot use the standard mileage rate for the car or the vans. This is because all five vehicles are used in Maureen's business at the same time. She must use actual expenses for all vehicles.

Answer #8

8A. True - Correct Return

You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

Example. You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.

8B. False - Incorrect Return

You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. If you do not have complete records to prove an element of an expense, then you must prove the element with:

1. Your own written or oral statement containing specific information about the element,

and

2. Other supporting evidence that is sufficient to establish the element.

If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Direct evidence can be written statements, or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Documentary evidence can be receipts, paid bills, or similar evidence. If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial, rather than direct. For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Invoices of deliveries establish when you used the car for business.

Answer #9

9A. True - Incorrect Return

If you are both self-employed and an employee, you must keep separate records for each business activity. Report your business expenses for self-employment on Schedule C, C-EZ, or F (Form 1040). Report your business expenses for your work as an employee on Form 2106 or 2106-EZ.

9B. False - Correct Return

You must keep separate records for each business activity, if you are both self-employed and an employee. If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. If self-employed, y ou must report your income and expenses on Schedule C or C-EZ Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. You do not use Form 2106 or 2106-EZ. If you claim car or truck expenses, you must provide certain information on the use of your vehicle. You provide this information on Sched-

ule C, Schedule C-EZ, or Form 4562. If you file Schedule C:

1. Report your travel expenses, except meals, on line 24a,

2. Report your meals (actual cost or standard meal allowance) and entertainment on line 24b (The 50% limit is figured on line 24c.),

3. Report your gift expenses and transportation expenses, other than car expenses, on line 27, and

4. Report your car expenses on line 9. Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization.

Answer #10

10A. True - Incorrect Return

If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf.

10B. False - Correct Return

You generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf, if you are a client or customer. However, you must keep records if:

1. You reimburse the contractor for entertainment expenses incurred on your behalf,

and

2. The contractor adequately accounts to you for these expenses.

CPE Accounting & Tax Institute